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How to Lower Mortgage Interest Rates Without a Re-Mortgage

by Paul Dohrman

Overview

Homeowners who want to refinance into a new mortgage to take advantage of lower rates face the same scrutiny as a homeowner taking out a new mortgage (salary verification, house appraisal, etc.), in addition to the same fee schedule. Furthermore, equity may have disappeared in the house because of a failing housing market. Such homeowners may still be able to win lower mortgage interest rates and monthly payments, through loan modifications of the current mortgage.

Step 1

Make sure you have a financial hardship that you can demonstrate to the lender. A financial hardship is usually necessary to qualify for a loan modification. Why? Because lenders do not want to be taken advantage of by homeowners who can afford to refinance. Examples of qualifying hardships are reduction in income, temporary loss of employment, a medical emergency, a death in the family or nonpaying tenants.
Step 2

Contact the lender's loss mitigation or loan modification department. Explain that there is a hardship and a need to have the interest rate lowered and/or the back payments rescheduled to the end of the mortgage.
Step 3

If the lender is uncooperative, then contact a professional who performs forensic loan audits. More than 80 percent of nontraditional (other than 30-year-fixed) home mortgages granted between 2006 and 2008 had some Truth-in-Lending or other violation in the closing documents and procedures. Common examples are improper calculation of the payment schedule and inadequate disclosures. Demonstrating such violations to the lender can improve its responsiveness.
Step 4

If the lender is not responsive to a loan audit approach, contact Hope Now for guidance. Hope Now is a joint venture between lenders and the government and provides free home financing guidance at (888) 995-HOPE (see Resources).
Step 5

If none of these steps works, then hire an expert to do the negotiating. A professional who has a refund policy or holds your down payment in escrow is preferable, since the lender is a third party and no negotiator can guarantee to what the lender will agree. Some nonprofits will do the negotiating for a minimal amount or for free. A lawyer can do it as well, but a fee as low as $1,000 is unusual.
Step 6

Confirm that any terms offered by the lender are, in fact ,an improvement. A survey mentioned in Time found that more than half of loan modifications surveyed during a period in 2008 left the monthly payments the same or raised them (see References).